LONDON, May 28 The price of homes in Britain's
capital may start to fall this summer, UK lender Nationwide
said on Wednesday, potentially reducing the need for
new measures to cool London's red-hot property market.

House prices have soared in London as the economic recovery,
record-low interest rates and government schemes help home
buyers tempt purchasers into one of the world's most expensive
property markets.

A housing bubble poses the biggest risk to the stability of
Britain's $2.5 trillion economy, Bank of England Governor Mark
Carney warned on May 18, a view backed by UK Prime Minister
David Cameron. Carney said the bank was looking at ways to
control mortgage lending amid a shortage of home building.

Nationwide's Chief Executive Graham Beale said officials
should wait until the end of the summer before deciding on any
action.

"My view is that in London we will see a natural correction
through the summer months. That intense heat does seem to be
dissipating a bit. We could be seeing the early signs of a
natural correction," Beale told Reuters.

If house prices were to fall in the capital, it would be
seen as positive for Cameron, because it would make it less
likely that the central bank would raise interest rates before
the next election in 2015.

The BoE has so far kept interest rates at a record low.
Carney said last week that the bank was only edging towards an
increase in borrowing costs and most economists in a Reuters
poll shared that view.

Beale's forecast comes as the UK's third-largest mortgage
lender, which has a 10 percent share of the London market, said
it more than doubled its underlying profit last year and hit a
capital target set by Britain's financial regulator a year
early.

"House prices look like they are peaking out at about 10
percent annualised which is not great but at least they are not
going up further. I think it is going to ease back down," he
told reporters at a presentation on Wednesday.

The BoE's Financial Policy Committee, whose main task is to
identify and remove risks to Britain's financial system, meets
on June 17 and could apply further mortgage controls.

Tighter rules on mortgage lending are widely believed to
have dampened borrowing in recent months and Britain's banks
last month approved the lowest number of mortgages since August
2013.

Cameron said this month that the government would consider
scaling back its 'Help to Buy' mortgage guarantee scheme if
Carney advised it would be prudent. The scheme allows people to
buy property worth as much as 600,000 pounds ($1 million) with
deposits as low as 5 percent, but the upper limit could be
reduced to dampen its influence in London, where prices are
higher than the rest of the country.

The average London house price is 458,000 pounds, up from
301,000 five years ago. Prices outside London are still several
percent below pre-crisis peaks, even before adjusting for
inflation, and transaction levels have not recovered either.

Beale said estate agents were reporting a drop in the number
of viewings for properties and house price reductions. Official
data showed house prices in London rose 17 percent in March on
an annual basis, but less than a 17.8 percent increase in
February.

Britain's biggest mortgage lender, Lloyds Banking Group
, preempted a move by the central bank, saying this
month that it was introducing tougher lending criteria to help
tackle rising prices.

Lloyds, which is 25 percent-owned by the government, said it
would limit mortgages to a maximum of four times a borrower's
annual earnings when it is lending more than 500,000 pounds.

High loan-to-income ratios have become more common, with 17
percent of new mortgages for house purchases in London having
loan to income ratios greater than 4 and a half times, the BoE
said in its financial stability report in November 2013.

Some analysts said although the affordability of London
homes was an issue, the main problem was a shortage of available
housing.

"Given this supply issue, it will be interesting to see if a
slowdown in rising house prices manifests itself into a full
grown correction," said Ed Goodworth, real estate partner at
accountancy and business advisor firm BDO.
($1 = 0.5952 British Pounds)
(Additional reporting by William Schomberg; Editing by Huw
Jones and Louise Heavens)

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